SNO a no go, says analyst

By Phillip de Wet for Gartner
Johannesburg, 07 Aug 2002

A 49% stake in the competitor to Telkom may already be allocated, but research house Gartner thinks finding a taker for the rest is akin to a pipedream.

If I were an operator and had the cash, I`d think very carefully about spending it here.
Bhawani Shankar, analyst, Gartner

"If I were an operator and had the cash, I`d think very carefully about spending it here," says Bhawani Shankar, a European analyst in SA for an annual Gartner conference.

The second national operator (SNO) is due to start operations sometime next year. Government has allocated 30% of its equity to parastatals Transtel and Eskom`s Esi-Tel, and a 19% black empowerment stake is set to go to the Nexus Connexion consortium. The controlling share is to be allocated to a single foreign operator with experience in running a large telecommunications company and the money to invest in building one here.

Potential candidates have to submit their bids by the end of this month to be evaluated "beauty contest" style. Despite British Telecom being tipped as a contender, Shankar is not holding his breath.

It is not just that few operators have much cash on hand, while most have crippling debts and a need for capital outlay in their home markets. Shankar says the days of geographical expansion for its own sake is long over in the telecommunications world. What operators now crave above all else is certainty that they will be allowed to turn a profit. In SA, the government has done nothing to give them that assurance.

"I`m not comfortable with the relationship between the Independent Communications Authority of SA [ICASA] and the Department of Communications," he says.

Gartner advocates that regulators be given input into the legislation they work under. Locally the policy is that regulators be pure implementers of the law laid down by legislators. The measure of control this gives to fickle politicians does little to assure operators that their best interests will be kept in mind.

Shankar also contends that the government has not done nearly enough to build the expectation of potential investors. Gartner thinks SA could present a solid opportunity but that it has not been packaged and sold correctly.

A company expected to invest several billions of rands in infrastructure would expect its way to be smoothed, he says. But SA is caught in a "cultural warp" between the Asian habit of strong government support for operators and the Western philosophy of profit or die under your own steam.

There are other problems Gartner has with the SNO process, particularly the 30% stake the state allocated to itself and the "divide-and-rule franchise model" of small operators in rural areas. The result, it believes, will be a near total lack of bids come the end of August.

The solution, according to Shankar, is to have a "well-rounded" consortium of investors take up the remaining 51%. This should be made up of some local investors, one or two foreign banks, and one or two foreign operators. He believes this would limit the risk and investment required to a level where the operators would at least consider the opportunity.

As for plans to look at introducing a third operator further down the line: "I don`t see a market like SA sustaining any more than two large operators," he says.